Concept explainers
a.
Concept Introduction:
Consolidation: Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary
To Explain:
a.
Explanation of Solution
Following journal entry would be recorded:
In the books of P Corporation | ||||
Journal Entry Register | ||||
Particulars | Debit | Credit | ||
(1) | Merger Expense | 178000 | ||
To cash | 178000 | |||
Being legal fees paid recorded | ||||
(2) | Cash | 20000 | ||
| ||||
Inventory | | |||
Patents | | |||
Building & Equipment | | |||
| ||||
To Accounts Payable | | |||
To Notes Payable | | |||
Being purchase of S corporation recoded |
b.
Concept Introduction:
Consolidation: Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary adjustment entries as required in the process of consolidation.
To Prepare: a balance sheet for P immediately after acquisition.
b.
Explanation of Solution
Combined Balance Sheet | ||||
February 1, 20X3 | ||||
Liabilities | Amount | Assets | Amount | |
Accounts Payable | | Cash | | |
Notes Payable | | Accounts Receivable | | |
Common Stock | | Inventory | | |
Additional Paid in Capital | | Patents | | |
Retained Earnings | | Buildings and Equipment | | |
Less: Accumulated Dep. | | |||
Goodwill | | |||
Total | | Total | |
c.
Concept Introduction:
Consolidation: Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary adjustment entries as required in the process of consolidation.
To Explain: journal entry to be recorded by P if it acquired all of S’s common Stock (instead of S’s net assets) for
c.
Explanation of Solution
Journal entry to be recorded:
In the books of P Corporation | ||||
Journal Entry Register | ||||
Particulars | Debit | Credit | ||
Investment in Zink Co. | | |||
To Cash | | |||
Being legal fees paid recorded |
Note 1: Computation of Goodwill
Fair Value of consideration given:
Fair Value of net assets acquired:
Therefore, value of goodwill is
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Chapter 1 Solutions
ADVANCED FINANCIAL ACCOUNTING IA
- Acquiring net assets that constitute a business Assume on January 1, 2022 an investor company paid $1,188 to an investee company in exchange for the following assets and liabilities transferred from the investee company: Asset (Liability) Estimated Fair Value Production equipment $420 480 Factory Licenses 300 In addition, the investor provided to the seller contingent consideration with a fair value of $120 and the investor paid an additional $48 of transaction costs to an unaffiliated third party. The contingent consideration is not a derivative financial instrument. The fair values are measured in accordance with FASB ASC 820: Fair Value Measurement. Assume the net assets transferred from the investee qualify as a "business," as that term is defined in FASB ASC Master Glossary. At what amount will Goodwill be reported in the financial statements of the acquiring company on January 1, 2022? Select one: a. $12 b. $108 c. $36 d. SOarrow_forwardanother entity when the statement of financial position of amount of assets and liabilities: the acquiree showed net assets of P3,200,000. P4,000,000 cash all of the outstanding ordinary shares of At the current year-end, Clever Company purchased for another entity when the statement of financial position of the acquiree showed net assets of P3,200,000. The acquiree revealed the following fair value and carrying Carrying amount Fair value Property, plant and equipment, net Other assets Long-term debt 5,000,000 500,000 3,000,000 5,750,000 2,800,000 As a result of the trànsaction, what amount should be reported as goodwill at year-end? a. 350,000 b. 250,000 c. 750,000 d. 800,000arrow_forwardAcquiring net assets that do not constitute a business Assume on January 1, 2022 an investor company paid $1,485 to an investee company in exchange for the following assets and abilities transferred from the investee company: Asset (Liability) Estimated Fair Value Production equipment $525 Factory Licenses In addition, the investor provided to the seller contingent consideration with a fair value of $150 and the investor paid an additional $60 of transaction costs to an unaffiliated third party. The contingent consideration is not a derivative financial instrument. The fair values are measured in accordance with FASB ASC 820: Fair Value Measurement. 600 375 Assume the net assets transferred from the investee do not qualify as a "business," as that term is defined in FASB ASC Master Glossary At what amount will Goodwill be reported in the financial statements of the acquiring company on January 1, 20227 Select one: 0 145 Ob$135 O CSIS d.10arrow_forward
- Buchanan Imports purchased McLaren Corporation for $5,000,000 cash when McLaren had net assets worth $4,500,000. A. What is the amount of goodwill in this transaction? B. What is Buchanans journal entry to record the purchase of McLaren? C. What journal entry should Buchanan write when the company internally generates additional goodwill in the year following the purchase of McLaren?arrow_forward1. The Judi Company purchased another entity for P8,000,000 cash. A schedule of the fair value of the acquired entity's assets and liabilities is prepared as of the purchase date. Cash Accounts Receivable Inventory Property, plant and equipment 6,550,000 Accounts payable Notes Payable - Bank (long-term) 1,950,000 Net assets at fair value 100,000 850,000 1,300,000 4,300,000 950,000 1,000,000 4,600,000 Compute for the amount of goodwill using residual approach. a. P 1,450,000 b. 3,400,000 c. P 4,600,000 d. P 2,900,000arrow_forward5. On January 1, 20x1, DIAPHANOUS Co. acquired all of the identifiable assets and assumed all of the liabilities of TRANSPARENT, Inc. by paying cash of P4,000,000. On this date, the identifiable assets acquired and liabilities assumed have fair values of P6,400,000 and P3,600,000, respectively. Additional information:In addition to the business combination transaction, the following have also transcribed during the negotiation period: a. After the business combination, TRANSPARENT will enter into liquidation and DIAPHANOUS agreed to reimburse TRANSPARENT for liquidation costs estimated at P80,000. b. DIAPHANOUS agreed to reimburse TRANSPARENT for the appraisal fee of a building included in the identifiable assets acquired. The agreed reimbursement is P40,000.c. DIAPHANOUS entered into an agreement to retain the top management of TRANSPARENT for continuing employment. On acquisition date, DIAPHANOUS agreed to pay the key employees signing bonuses totaling P400,000.d. To persuade, Mr.…arrow_forward
- Constructing the Consolidated Balance Sheet at Acquisition On January 1 of the current year, Healy Company purchased all of the common shares of Miller Company for $500,000 cash. Balance sheets of the two firms immediately after the acquisition follow: During purchase negotiations, Miller's plant assets were appraised at $425,000 and all of its remaining assets and liabilities were appraised at values approximating their book values. Healy also concluded that an additional $85,000 (for goodwill) demanded by Miller's shareholders was warranted because Miller's earning power was better than the industry average. Prepare the consolidating adjustments and the consolidated balance sheet at acquisition. Use negative signs with consolidating adjustment answers, when appropriate. Current assets Investment in Miller Healy Miller Consolidating Consolidated Company Company Adjustments Balance Sheet $1,400,000 $80,000 $ 500,000 3,000,000 410,000 Plant assets, net Goodwill Total assets $4,900,000…arrow_forwardThe general ledger of Grumpy Corporation as of December 31, 2021, includes the following accounts: Соprights Deposits with advertising agency (will be used to promote goodwill) 27,000 Discount on bonds payable Excess of cost over fair value of identifiable net assets of Р30,000 70,000 acquired subsidiary Trademarks 90,000 90,000 In the preparation of Grumpy's balance sheet as of December 31, 2021, what should be reported as total intangible assets?arrow_forwarda. calculate the purchase consideration b. calculate the goodwill or bargain purchase for this transaction c. Prepare the journal entries in the books of Chelsea Limited relating to this transaction Pax Limited showed the following assets and liabilities in its financial statements at 31 December 2018. DETAILS PPE Inventory Long Term Loans Account Payable CARRYING AMOUNT FAIR VALUE 10,000,000 14,000,000 4,200,000 4,400,000 (3,500,000) (3,500,000) (2,500,000) (2,500,000) 8,200,000 12,400,000 3.1. The current market rate for similar transactions is 8.5% per annum. Chelsea Limited planned to acquire all the assets and liabilities of Pax Limited on 1 July 2018 and agreed to pay R13,400,000 in cash on 1 July 2019 in full settlement of the acquisition.arrow_forward
- On January 1, 20x1, DIAPHANOUS Co. acquired all of the identifiable assets and assumed all of the liabilities of TRANSPARENT, Inc. by paying cash of ₱4,000,000. On this date, the identifiable assets acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000, respectively. Additional information:In addition to the business combination transaction, the following have also transcribed during the negotiation period:a. After the business combination, TRANSPARENT will enter into liquidation and DIAPHANOUS agreed to reimburse TRANSPARENT for liquidation costs estimated at ₱80,000.b. DIAPHANOUS agreed to reimburse TRANSPARENT for the appraisal fee of a building included in the identifiable assets acquired. The agreed reimbursement is ₱40,000.c. DIAPHANOUS entered into an agreement to retain the top management of TRANSPARENT for continuing employment. On acquisition date, DIAPHANOUS agreed to pay the key employees signing bonuses totaling ₱400,000.d. To persuade, Mr.…arrow_forwardOn January 1, 20x1, DIAPHANOUS Co. acquired all of the identifiable assets and assumed all of the liabilities of TRANSPARENT, Inc. by paying cash of ₱4,000,000. On this date, the identifiable assets acquired and liabilities assumed have fair values of ₱6,400,000 and ₱3,600,000, respectively. Additional information:In addition to the business combination transaction, the following have also transcribed during the negotiation period:a. After the business combination, TRANSPARENT will enter into liquidation and DIAPHANOUS agreed to reimburse TRANSPARENT for liquidation costs estimated at ₱80,000.b. DIAPHANOUS agreed to reimburse TRANSPARENT for the appraisal fee of a building included in the identifiable assets acquired. The agreed reimbursement is ₱40,000.c. DIAPHANOUS entered into an agreement to retain the top management of TRANSPARENT for continuing employment. On acquisition date, DIAPHANOUS agreed to pay the key employees signing bonuses totaling ₱400,000.d. To persuade, Mr.…arrow_forwardArizona Corporation acquired the business Data Systems for $320,000 cash and assumed all liabilities at the date of purchase. Data's books showed tangible assets of $260,000, liabilities of $40,000, and stockholders' equity of $220,000. An appraiser assessed the fair market value of the tangible assets at $250,000 at the date of acquisition. Arizona Corporation's financial condition just prior to the acquisition is shown in the following statements model. Required a. Compute the amount of goodwill acquired. b. Record the acquisition in a financial statements model like the preceding one. Complete this question by entering your answers in the tabs below. Required A Required B Record the acquisition in a financial statements model. Note: In the Statement of Cash Flows column, use the initials OA for operating activities, FA for financing activities, or IA for investing activity. Enter any cash outflows or decreases to account balances with a minus sign. Leave cells blank if no input is…arrow_forward
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